Courtesy of Tuesday RBA policy statement, strength in global stocks, another surge in the price of crude oil and broad-based US dollar weakness the Australian dollar extended its Asian session gains in overnight trade, closing at a fresh one-month high of .7457.
“The perception of a lower for longer Fed has slowly but surely brought back an improvement in risk sentiment,” said Rodrigo Catril, currency strategist at the NAB.
“Global equities had another positive night, oil prices edged a little bit higher and risk sensitive currencies have outperformer with the AUD at the top of the leader board.”
While the Aussie extended its gains in overnight trade, the vast bulk of the 1.25% gain seen on Tuesday came in the immediate aftermath of the release of the RBA’s June monetary policy statement in which the bank offered no clear guidance on the outlook for domestic interest rates, something that surprised many in financial markets.
“The RBA left the OCR unchanged at 1.75% and somewhat surprised many in the market by moving to a neutral stance,” said Catril.
“The Statement suggests the RBA’s May easing is currently seen as sufficient to return inflation to target and achieve sustainable growth.
“As for the AUD, it’s worth noting that the RBA is seemingly happy where the currency is right now. With the USD vulnerable to the downside, post the dismal payrolls and Yellen’s cautious speech, the move to a neutral stance by the RBA has given the AUD a reason to trade higher and after yesterday’s pop the AUD is almost back to where it was before the RBA cut in May.”
As a consequence, the AUD/USD is currently trading at .7453 as at 8am AEST, the highest level seen since May 6 when the RBA downgraded its inflation forecasts in its quarterly statement on monetary policy which fuelled the belief that another interest rate cut, or more, was likely.
Turning to Wednesday trade in Asia, most of the market moving events will come from offshore, says Catril.
“Looking at offshore markets the data focus will be in Asia. This morning Japan prints its final reading for Q1 GDP along with its current account for April and at midday we get China’s trade figures for May.”
Although the Japan GDP release is unlikely to stir markets, the Chinese trade figures have a tendency to be market moving, especially in risk assets such as the Australian dollar.
According to Thomson Reuters, markets expect exports to decline by 3.6% from a year earlier, outpaced by a 6% drop in imports over the same time period.
A trade surplus of US$58 billion is forecast.
Domestically, there’ll also be some interest in housing finance approvals for April that will be released at 11.30am AEST.
Given recent strength in capital city house prices, particularly in Sydney, there’ll be plenty of interest in the dollar value of new lending, particularly to investors.
Lending to investors has increased in four of the past five months, following six consecutive declines between May and October last year.
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